Icra has forecast that non-food credit growth will slow down to 8 to 8.5 per cent during FY’20 from 13.3 per cent in FY’19, as fresh loans during the year have been very low. The ratings firm also expects bond market to grow at a slower pace as they remain risk averse towards NBFCs.
Bond volumes is expected to moderate to 4% in FY’20 from 12% in FY’19. Additionally, the recent changes in mutual funds regulations are likely to result in a decline in the volume of commercial paper (CP) outstanding by March’20. Local resources -bank credit, corporate bonds and CP outstanding – growth is expected to slow down to 6.2-6.8% in FY’20 from 13.5% during FY’19.
Commenting on the trend, Mr. Anil Gupta, Sector Head – Financial Sector Rating, ICRA, says, “A shift of large borrowers such as NBFCs and housing finance companies (HFCs) to the banking system for their funding requirements, had boosted bank credit growth in FY’19” said Anil Gupta, Sector Head – Financial Sector Rating, Icra. “ However, factors such as muted economic growth, lower working capital requirements of various borrowers, as well as risk aversion among lenders, have compressed incremental credit in H1 FY2020.”
The recent data on bank credit released by the Reserve Bank of India (RBI) reveals that the contraction in incremental credit outstanding to the services as well as the industrial segments, offset the entire growth in credit to the retail segment during H1 FY2020. Within services, the credit outstanding to NBFCs increased. However, the decline in trade credit and other services (which also includes HFCs) resulted in the overall contraction in credit outstanding to the services segment in H1 FY2020.